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Drought brings cattle to market

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Watch each Friday for Doug Ferguson's Market Intel blog on Beef Producer and BEEF magazine.
Is panic selling in a drought the right approach? Evaluating your actions could put money in your pocket.

We have seen it happening in other parts of the country, and we’ve seen glimpses of it here in my local area, but now this week it’s up to full song. I am talking about selling off due to drought conditions.

Last week when I was at female sales there was some selling due to drought, but the buyer demand over-shadowed it. The prices some were willing to pay showed strong optimism. This week some sale barns checked in a bunch of breds and pairs that they had no idea were coming. I mentioned this before and will stress it again, call ahead and consign the cattle so the stockyard can get them advertised.

Being in the business myself I know how things work sometimes. You call to consign, and the stockyard tells you they don’t want them. Does that mean they don’t want them period or just not this week? You must ask. If they don’t want them find another way to sell them, be it at a different stockyard (in my part of the country there are a bunch close by) or private treaty somehow.

With the over abundance of breeding stock showing up unexpectedly there was little interest from buyers. Many of these sold below their intrinsic value. Pairs were split up because no one would bid on them. Auctioneers were begging baby calf buyers to stick around.

Putting marketing skills to the test

This may sound horrible to many. It all depends on how you look at things. The number one advantage in the cattle biz is marketing skill, and our second greatest advantage is managing inventory. What we are seeing here is a combination of both. Some people are trying to feed their way through this by buying poor quality hay and paying too much for it. Others are selling off stock.

If you have extra hay on hand, and I am talking about your poor quality stuff, you can sell it for more than it should be worth. This may sound bad to some people but the reason it can be sold for that high of a price is because people want it.

Now when it comes to selling off the stock our advantage is knowing how to market. I am seeing an old worn out strategy that makes no sense to me. People are selling their under-valued stock and holding on to the over-valued stock. There was no interest from other cow calf operations to buy another mature cow. They did show great interest in buying young cows that were fat. These were the only ones that sold higher than their intrinsic value.

When times get tough we need to be brutally honest with ourselves. When it comes to marketing, we have no idea what we are doing. Most of just sell, we don’t market. Sound marketing skills can alleviate the burden of drought. The people that did a good job selling were the folks that sold the over-valued young females. The money portion of their inventory triangle got much bigger. The people that sold the under-valued mature females liquidated stock and only got a little bit of money for it, this is not good.

In my marketing schools I use a box as an illustration. In this box is all our inventory. It includes time, feed, a network of people, livestock, machinery, our knowledge, money and so on. If we do a good job we get to bring more stuff into our box. If we do a poor job we lose stuff out of our box. We saw people bring in a large lump of cash by selling the over-valued females. The size of the cash portion is greater than the value of the cow, so they added to their box. The other folks that sold the under-valued females not only are now short on livestock they are shorted on the money too. This is not good.

For this reason I am convinced that most of our problems relating to drought are self made.

Getting beyond drought

Most of the females that I saw sell this week were under-valued. This is what opportunity looks like. If someone were paying attention and has feed and some money, they could’ve bought these females and added value to them.

The other people paying the high prices for hay are probably feeding it to under-valued stock, but not all. I know some personally and they are feeding it to an over-valued species. The ones that are feeding over-valued feed to under-valued animals are devaluing their feed by feeding it. They are depleting their feed and money inventory to hang on to the cows. This is a common strategy and we’ve seen it fail with constant regularity. When it comes to marketing we have no idea what we are doing.

There is a difference between react and respond. When we react the situation, circumstances and other people are in control of us. When we respond we remain in control of ourselves. I see many people reacting right now

If we respond and have marketing and inventory management skills, we can capitalize on the abundance of opportunities right now. If we do not have these qualities, we will probably regret the decisions we made, but the good news is we can rationalize it away by blaming the drought. Rationalizing is just rationing lies to our own minds. This allows us to deflect responsibility. Until we take responsibility for ourselves and our business, we will never be able to improve them.

The good news in all this is that it is raining as I write this. Nothing will light a fire under a market like a rain. It will be interesting to see how the market reacts next week.

View from the markets

I already mentioned above what the females markets were like in my area. I am sure they were much different east of the Missouri River. I’ll keep my comments on the feeder markets brief. They were the same as the last two weeks and the feeder fat relationship remained the same as well.

Feeder bulls were 20 back, unweaned cattle were 7-25 back and replacement quality females caught a $7 premium.

The opinions of Doug Ferguson are not necessarily those of beefmagazine.com or Farm Progress

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